The phrase “industrial policy” conjures up images of Europe’s dirigiste failures, corruption in African and Latin American economies, and the disastrous 1984 presidential campaign of Walter Mondale. In board rooms and think tanks and even university class rooms across the country, the term generates an instinctive revulsion hardwired by decades of listening to laissez-faire and supply-side economic thinkers, from Milton Friedman and Martin Feldstein to George Gilder and Arthur Laffer. The phrase recalls humiliating policy failures from Solyndra and Evergreen Solar at one end to Soviet five-year plans at the other, more sinister end—not to mention the Great Leap Forward.
All this explains why industrial policy has been, by and large, a taboo subject among American politicians as well as economists. That is, until now. There’s been a recent shift in mood and attitude about the proper role of government in shaping America’s economic destiny. There’s a growing fear that limiting government’s role to merely umpiring market mechanisms is hurting both our economic future and our national security. There is a growing belief that policy options beyond market fundamentalism must exist, and that a failure to pursue these alternatives might put us on a different road to serfdom.
Those options would be especially attractive if they managed to avoid a radical uprooting of America’s basic economic landscape, or supplanting the normal incentives that foster economic growth and innovation. If, instead, government’s attention were simply focused on bolstering the handful of key industries that will determine the global balance of power in the twenty-first century—and where in many cases America already has a lead, though one that will quickly diminish if action isn’t taken soon—the notion of industrial policy might gain some new political as well as intellectual traction.
Read the full article in American Affairs